Dan Ariely on the “Irrationality” of American inequality

Dan Ariely on the “Irrationality” of American inequality

Dan Ariely of Predictably Irrational fame, makes the arresting point that from the standpoint of fairness and equity in the distribution of wealth and power, the vast majority of Americans (90-plus percent) would prefer to be living in Sweden. Which is to say: Mitt Romney’s scariest nightmare, “a European-style welfare state,” may be just the briar patch that most of us Bre’r Rabbits long for.

Dan Ariely is the Israeli-American psychologist, now at Duke, who has made a big name and career in the Dan Kahneman school of “behavioral economics.” The special Ariely gift is for surveys and social experiments that probe the gap between what we want and what we choose when we buy a house, pick a mate or vote for president. I’m bringing to the conversation my own probe for symptoms and causes behind Tony Judt‘s dying diagnosis, in Ill Fares the Land, that “something is profoundly wrong with the way we live today… We cannot go on living like this.”

Main roots of Judt’s and our own unease seem to pop right out of Dan Ariely’s experimental surveys — typically clever in their simplicity. First, when he asks his thousands of respondents to estimate the real division of wealth in the US, and then to propose an ideal distribution, we Americans confirm our sentimental attachment to a polite tilt of privilege. We cherish our mythic legacy of quasi-egalitarian social democracy, with no extreme concentrations of wealth or poverty. But what our answers really confirm is our delusion about the economy we live in now. The top 20 percent of the people in fact own 84 percent of the goods, and the bottom 40 percent of us, barely floating on a sea of debt, own less than half of one percent of the wealth of the nation. We live across roughly double the rich-poor gap measured in Germany, Japan and Denmark. By the standard “Gini coefficient” of wealth inequality, the US ranks with Turkestan and Tunisia, just a tad more equal than Chad and Sri Lanka.

The second key question in Ariely’s survey is even simpler; the answer is a slam dunk. Respondents were shown two pie charts — one with the actual American shares of wealth, in which 60 percent of the population nearly disappears with less than 5 percent ownership altogether; in the alternative, modeled on Sweden, the top 20 percent owns 36 percent of the wealth (almost double its claim by sheer numbers) and the bottom 20 percent owns 11 percent (about half its numerical share). In Dan Ariely’s study (with Michael Norton of the Harvard Business School), 92 percent of us Americans want to live Swedish-style instead. Women (93 percent in favor of the Swedish model) are a ever so slightly more egalitarian than men (90 percent for Sweden). But the results come out very nearly the same — Republicans and Democrats, richer and poorer, NPR listeners and readers of Forbes Magazine.

What we hear eternally in political chatter is Joe the Plumber’s dread of “spread the wealth” government, and Newt Gingrich’s alarm about “European Socialism.” And now the screech from Mitt Romney’s ex-Bain partner Edward Conard in the Times Magazine that we need bigger payoffs and “twice as many people” in the high-end investor class — in short, that we need a lot more inequality. But Dan Ariely’s evidence is that in the most steeply skewed social order in the industrialized world, we’re miserable about being skewered on the contradictions in a proud democracy that’s eroding fast at the foundations.

Dan Ariely brings, yes, the social-democratic biases of the Israeli left. He is imprinted unmistakably — body and soul — with the scars of severe burns he suffered as a teenager in a freak explosion: his face and most of his skin were remade over three excruciating years in hospital, all of the immeasurable expense covered by Israel’s socialized healthcare. Without it, as he told me, his family would have been bankrupted, his care might well have been curtailed.

The hope in Dan Ariely’s forecast for American politics and culture is for people who can hold out a while. How much do we need to change? I asked him:

A lot. I’m not a Biblical scholar, but after Moses came down from the mountain and saw the people of Israel celebrating the Golden Calf, God basically punished them by getting them to walk in the desert for 40 years, so that a generation would die. It might take a generation. That might be a reasonable time scale. The current generation that is running things might not be the right one. It might be that the generation that went to college during the financial crisis is the right generation — even if a lot of them are out of work. They’re thinking about what to do. They don’t have the Princeton-to-Wall Street path. They’re thinking of other things they might do with their lives, and because they don’t necessarily have jobs they are open to following their passions. My understanding is that volunteering is up. People are trying all kinds of things. There’s an increasing interest in graduate degrees — education is always counter-cyclical to the economy. This is a generation that saw the breakage of some ideologies of perfect capitalism, ready to revise their thinking. And they might be the right people to envision a new approach. The protests are a good signal. They’re a step in the right direction.

Lost in the analysis is the definition of wealth. In this article it is stated that 20% of the people own 84% of the goods. I am sure this number is true in some perspective. Where it fails is when you attempt to assess the state of the individual. Apparently 70% of the country “owns” their home. Owns in quotes because, the bank usually owns most of it. Anyone in this country can own a car outright with little effort. Even a minimum wage job can get you the $2000 to buy a car that will get you from point A to point B reliably. It might not have all the whizbang gadgets of a new car, but it will start, drive and a stop when appropriate. Access to healthcare? Just about anyone can get healthcare in the country. You might go broke, but then it is actually easier to get it. The problems aren’t so much getting healthcare as getting people care for themselves. A wino is into getting drunk, not into getting into health.

Using a game like Sim City to have people find for themselves what their ideal world would look like (at least in terms of physical infrastructure and what physical infrastructure implies about the rest of society) is a great idea. I’ve used Sim City to introduce young people to some very basic ideas in philosophy. You are not told how to measure your success (large population? large annual surplus? large annual surplus? the efficiency of your transit system? the happiness of your citizenry? beauty?), and have to come to understand that there is sometimes nothing that is objectively the best choice, but only the best choice given your priorities.

(Be careful though, Dan Ariely! Sim City’s gameplay mechanics tend to encourage players to court only the rich, and to condemn what poor you can not get rid of to live near polluting factories and power plants!)

I love these Ariely questions, but I wonder how they can reach more people. Many people don’t like having to guess answers (even when there is no right answer), suspecting they are being judged, or feeling it is unfair if the person asking the question knows the answer. Children can handle them, they generally feel it’s okay to not know things, but many adults feel a need to be far more defensive.

Thank you Christopher! What a wonderful conversation… which makes me think there must be something wrong with me… I’m your classic – at the surface atleast – self-serving capitalist – Ivy Leager, US Navy officer, Harvard Business School, McKinsey consultant, Silicon Valley entrepreneur – but I so see the ills of our society, the imbalances, the benefits which Europeans have – where I have to admit I have lived for part of my career. Do we really have to wait a generation to make these changes? Cannot some of we “older” kids help build the bridges to this more sustainable future that we could all benefit from? How to make our conversations more irrational when the Fox News or even the CNBCs engage with more our irrational side? Thank you again Christopher. I’ve been a fan for at least 12 years – and especially appreciated this important interview / discussion.

Potter

Dan Ariely’s work is extremely interesting and relevant now. I think many would say we are not going in the right direction. But I don’t think we would agree about the remedy. My neighbor calls herself an independent but she gives me right wing talk radio points. She is worried about “Obamacare” and that she will lose what she has now. I am sure Dan Ariely would have a question or two for her. I told her that I think that poor people should have health care and she agreed with me.

Ariely is talking about a process of education of the electorate. That is a big project on point after point. using crafty questions. I fear and I may be willing to bet that minds will not be changed without constant repetition of facts and the results that result. I think “tribal” affiliation or ideology (as delivered) is very strong regardless so divided we are, especially during this election season.

So I think we are in deep trouble. It’s hard to listen to Mitt Romney, his smooth delivery, the mischaracterizations, the outright lies. To him the country is a business, needs a businessman. His business buddy is selling a book about how inequality is necessary.

This should not be a close race if people are really listening. Amazingly it’s already close.

So many independents are wary of what they perceive to be “radicalism,” and what is perceived of as “radicalism” is usually defined by how vocal the opposition to any idea is. The American left is incapable of making the short-term political sacrifices necessary to have a real message that the electorate can learn to accept as normal and acceptable, and is unable to criticize radicalism in a meaningful way. If a member of the American right goes too far off message, it’s very easy to start an online campaign to “primary” (probably already there are people who see “primary” being a verb as being so normal that seeing it in quotes seems odd) the Republican In Name Only, and criticize them on talk radio, it’s so easy for the right to call something radical.

A slightly different formulation, perhaps less relevant to the immediate conversation: Every Democrat is running a local campaign, needing to appeal to the local left to earn votes, and every Republican a national campaign, needing to appeal more to the national right for fundraising. The decline of newspapers has nearly guaranteed that the electorate increasingly is only tuned into the national narrative at the expense of the local.